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New approach to consumer theory
Journal of Political Economy(1966)
Old approach states that goods are the direct objects of utility and that goods are consumed
only because of the that they are goods. It means that goods are consumed not because they
have intrinsic value but because they are goods.
New approach deviates from the traditional approach and states that it is the properties and
characteristics of the goods from which utility is derived.
It assumes that consumption, singly or in combination, are inputs and the output that
we get is a combination of characteristics. A product does not have only one characteristic but
may have numerous characteristics which many other products may share. A product does
not have to be a close substitute to share the same properties but may vary to the extent of a
diamond to bread.
The essence of the new approach can be summarized in the following three points:
1. The goods, per se, do not give utility to the consumer. It possesses characteristics
which gives rise to utility.
2. In general, a good may possess more than one characteristic, and many characteristics
will be shared my more than one good.
3. Goods in combination may possess characteristics different from those pertaining to
the goods separately.
i. Let us take an example where a person is thirsty and wants to have either Coca Cola or
Fanta. The old approach says that he can consume either of the two, to quench his
thirst. It doesn’t differentiate between the two and says that both are substitutes
But if a person prefers Coca Cola over Fanta it is because of its intrinsic properties on which
basis a consumer differentiates between the two (pt. 1 above).
ii. Both Fanta and Coca Cola share some common characteristics and also they share
some common characteristics with mineral water and a fruit juice like fruity (pt. 2
iii. The experience of a consumer might be higher while having coffee at Barista in their
friends company, as well as enjoying the ambience of the place, than consuming or
experiencing such things separately. He/she may have the same coffee at home and
may enjoy such an ambience elsewhere as well but that might not give that same kind
of utility to the consumer. In the same way for alcohol consumers the ambience of a
lounge makes all the difference between consuming it there or at their respective
At the same time there might be instances when the joint consumption of two goods may
lead to decrease in utility. For example watching T.V. and listening to music on the radio at
the same time.
iv. Though the whole paper stresses on consumption of two goods collectively, it implies
and applies the same for the consumption of a good with service together, and also
for two services together.